Hello, New member here. I've been trading for a while, I recently switched over to IB and in their reports they provide Sharpe and other ratios. I'm wondering how important these ratios are as in the past I've read some funds rely on them heavily while more recently I've seen some controversial statements. I've only been with IB for a month now.. these are the ratio's that were in my September monthly detailed report - Sharpe Ratio: 4.86 Sortino Ratio: 7.52 Calmar Ratio: 231.48 Based on some google searches, it seems these stats are really good which is what makes me skeptical. Sure, I had a good month but still it looks like these figures are far from the norm.. so if anyone has any insights, I'd appreciate some input. This is specifically what I'm looking to find out. 1. How important/relevant are these ratio's 2. Are IB's calculation accurate 3. Is a monthly report accurate? or do these ratio's work better annually? 4. Do these ratio accurately take into an account downside risk? (it's been a good month for equities) My hunch is that the main takeaway from these ratio's is that I'm taking on way too much risk. Any input would me much appreciated.
Each of Sharpe, Sortino, and the CalMar have their role. But rather than thinking of them like a brand, think of the actual math -- what *is* your return? What is your return versus the market? What about market risk? Reminding myself of the math makes each take on meaning. FWIW, one criticism about Sharpe and Sortino is that they are (too) specific to the time being measured, without actually saying so. Kestner's K ratio treats time more appropriately. There are some good academic studies out there, but https://thesystematictrader.com/2013/04/22/coding-lars-kestners-k-ratio-in-excel/ that one makes a good first shot. Solid stuff.
Your Sharpe, Sortino, and Calmar seen fine. I have an IB account and my Shape Ratio improved significantly after closing out some losing option spreads. For example, my Sharpe Ratio was 3.6, I lose 20% of my overall account profits, and my Sharpe Ratio goes up to 3.97! I will create my own performance measures to supplement industry "standard" performance measures. Certain trading results can skew some of the performance measures and thus give misleading results. I need my performance measures to accurately show key trading performance metrics such as trading consistency, reward to risk ratio, percent of trades that are profitable, percent contribution to overall returns of outlier trades both positive and negative, correlation to major indexes, average high low leverage use, and intraday equity swings. Other trading analysis that would be nice to have is performance by trade duration, entry time and day of week, trade type, consecutive trading profits and losses regression analysis to gauge trader psychology after a series of successes and failures.
Yes, they are quite good. Remember these are risk measures, not return measures, but as long as your returns are also decent, these risk numbers are excellent. 1. They are important to measure realized risk. If you took lots of risk but it didn’t show up (ie short TSLA calls this month), realized risk may not capture actual risk. Sharpe is a good general metric, although if you mostly have upside volatility (ie I will make money each day, but it could be $1 or $100), then Sortino is better. 2. If the IB marks for your daily portfolio are correct, I’m sure their calculation of the ratios is also. Unless you have some reason to think the daily marks are wrong due to some extraordinary situation (which did happen to me this month, by +20% FWIW), they should be correct. 3. Annual numbers are better since as I said, you want to measure actual risk not realized risk. Longer time periods allow for unseen risks to show up and so are probably more representative as long as your strategy or trading style doesn’t significantly change. 4. Calmar is a measure of realized downside risk, as measured by drawdowns during the period. Again, realized risk is different than actual risk like when you say you had a good month.
Thanks, those were some great responses. Very helpful. Tommcginnis - K ratio looks really interesting and I can already see that I'd want to track that. It seems it would be quite easy to write a small script that interacts with the IB API to automatically push data into a googlesheet to automatically chart it, I'm going to look into it some more. maximumpossiblesuffering - I came across a post on here that talks about fundseeder. It looks like they have a lot of the specific performance metrics you are looking for. Might be worth checking out. Moreleverage - I think you picked up on what my main concern is. Maybe your name should have given it away! Just for some background, I made 20% last month which is what sparked my concern. Coming from a FX background, if you have that kind of return it most likely means the account was over leveraged/overexposed, at least for my style of trading. There were some periods where I was only long risk - short yen, long commodity currencies, long stocks, indices and short puts. Now I've tried to even it out a bit by shorting European indices and stocks but then again those have been turning where for most of the month the global markets were generally strong. So it left me thinking, if there was some kind of a crash/sharp correction, I'm obviously exposed but I can't quite figure out how much I'd be exposed. Seems like a down month (which I hope I don't have!) will provide more insight as you have suggested.